Cash flow squeeze coming for many producers

Grain prices have been highly volatile. The value of what’s in your bins is changing dramatically one week to the next. | File photo

Typically at the end of harvest, you can multiple your production by expected prices and match revenue to all the upcoming expenses as you prepare for the next growing season.

This year, particularly for the large percentage of producers seriously affected by drought, it isn’t that simple.

Grain prices have been highly volatile. The value of what’s in your bins is changing dramatically one week to the next.

Many producers are facing contract buy-outs because they don’t have enough production to fulfill obligations. On some of those contracts, the buyout may still be pending and may be a moving target.

Crop insurance will be an important revenue source for thousands of farmers across Western Canada. Producers can estimate their claims, but that money is yet to flow. The programs are overwhelmed by the volume of claims.

Reports indicate that fewer than half of eligible producers are enrolled in AgriStability. For those who are enrolled, this could be a year of significant payouts, but payment levels and timing are difficult to predict. It has never been a bankable program.

For producers enrolled in Global Ag Risk Solutions, a private margin insurance program, support is more bankable and can be estimated in advance, but a lot of calculation and documentation is required to arrive at the final number.

For these reasons, the revenue side of cash flow planning, both the amount and the timing, is considerably more nebulous and fluid than normal. Meanwhile, the expenditure side of the equation gets scarier every week.

Fall and early winter is when fertilizer is usually the least expensive. Buying well in advance of the spring rush saves money eight or nine years out of 10. This year, fertilizer prices remained strong after seeding and gradually increased. In the last couple months, price increases have been significant.

Now might still be a better time to buy than the spring, but at this point, producers have priced a minimal amount of their 2022 fertilizer needs. Many want to see the results of their soil tests to know how many residual nutrients remain in the soil following a drought year. Knowing what to pencil in for next season’s fertilizer expense has become difficult.

Seed costs are another issue. On cereals and pulse crops, most producers rely on bin-run seed unless they’re updating varieties. In some cases, the meagre amount harvested may not be suitable for seed. In other cases, contract obligation on a particular crop may exceed the amount harvested, leaving nothing left over for seed.

Seed prices are naturally a premium to commodity prices and commodity prices are very high. When commodity flax is being quoted at $40 a bushel, the price of flax for seed has to be considerably higher.

Interestingly, there will be less sticker shock from the price of canola seed than usual. Produced under irrigation in southern Alberta, hybrid canola seed is likely to show far less price appreciation than other grains, oilseeds and specialty crops.

Overall, the cash flow situation going into next spring will vary dramatically from one region to the next and even one farm to the next. As cash flow becomes clearer, the picture isn’t going to be pretty for some.

It’s probably safe to say that a lot of producers will be seeking an increase in their operating loans.

Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.

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